One of the benefits of an
IRA
is that you
can invest the money almost any way you like. For instance, you
could buy
stocks,
bonds,
mutual
funds,
or
real
estate investment trusts (REITS).
You can choose
very conservative certificates of deposit (CDs) or more speculative
derivative investments. However, this flexibility also means you
need to make decisions about what types of investments you'll
be most comfortable with and which ones are best suited to help
meet your goals.
When building your portfolio, you need to consider
how you'll
diversify
your investments, or spread them among different types of securities,
such as
small-capitalization
and
large-capitalization
stocks.
Diversification
puts you in a better position to weather
any shifts in the market or drops in a particular type of stock,
for instance.
If your goals or your financial situation change,
or if an investment you've chosen turns out to be a major disappointment,
you can transfer money between investments in your IRA. Of course,
you'll be responsible for any losses you may incur in your account,
and you still have to pay transaction costs. But you won't owe
taxes on any gains you make by selling an asset at a profit, the
way you would in a regular investment account.
Certain investments aren't ideal choices
for an IRA. Interest you earn on
municipal
bonds,
for example, is usually tax free.
But if you put them in a traditional IRA, you'll have
to pay tax on those earnings when you withdraw, just
as you do on all your other IRA investments. And since
municipal bonds usually pay interest at a lower rate
than comparable corporate bonds, there's no advantage
in having them in a Roth either.
